The tax implications of retirement

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When can I retire from a retirement fund?

You can claim the retirement benefits from a retirement fund once

you have reached the age of 55 or

you are permanently disabled or

you emigrate (subject to terms and conditions).

How do I receive funds from the retirement fund when I retire?

When you retire, a maximum of one-third of the market value of your investment can be taken as cash lumpsum. The remainder must be used to purchase a pension-providing vehicle, for example a living annuity or life/ guaranteed annuity (an annuity is a regular monthly payment which will be paid to you by the investment house/insurer holding your retirement fund). If the market value of your investment at retirement is equal to or less than R247 500, the full amount can be taken as a cash lumpsum.

What are the tax implications for the funds that I receive from the retirement fund?

The cash lumpsum received is not taxed using the normal income tax tables, but rather is taxed in terms of a special retirement fund tax table:-

Taxable income                                Rate of tax

R0 – R500 000                                    0% of taxable income

R500 001 – R700 000                       18% of taxable income above R500 000

R700 001 – R1 050 000                    R36 000 + 27% of taxable income above R700 000

R1 050 001 and above                     R130 500 + 36% of taxable income above R1 050 000

It must be noted that this table operates on a lifetime cumulative basis. If for example you take a cash lumpsum of R500,000 from a retirement fund, there will be not tax payable in terms of the tax table. Should you then take a cash lumpsum of R100,000 from another retirement fund, this will be taxed cumulatively as R500,001 to R600,000 and will thus be taxed at 18%.

The annuity payment (the monthly pension received on the balance of the retirement fund not taken as a cash lumpsum benefit) will be taxed using the normal income tax tables, along with any other income earned.

ABOUT THE AUTHOR: Des Brown

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